Oil Prices Continue to Rise on Tightening Supplies

International crude oil prices extended gains on Monday, touching their highest levels since March 6th this year. The steady rise in prices is being attributed to a continued tightening of supply from major oil producing nations, along with renewed hope of a reasonably strong recovery in demand during the second half of 2020 as coronavirus-related travel restrictions are eased around the world.

Brent crude futures for near-month delivery were trading at US$42.3 per barrel (bbl) on Monday afternoon, while the U.S. benchmark WTI was holding steady at just over US$40.0/bbl. Both contracts have risen by almost 10% over the past week.

Crude prices have been rising steadily since the OPEC+ group of oil producers, including Russia, agreed to extend a previously announced 9.7 million barrels per day (MMbbls/d) production cut till the end of July. The cuts were originally scheduled to be tapered to 7.7 MMbbls/d between July and December. According to several industry analysts, many traders are now also holding positions to see if OPEC+ will extend the 9.7 MMbbls/d cut for an additional month through August.

Rising crude oil prices were also supported by recent data released by the Energy Information Administration (EIA), which showed a decline in U.S. output for an eleventh straight week to just above 10 MMbbls/d last week. The number of active drilling rigs in the U.S. has fallen by more than 70% over the past 14 weeks, and are currently at a level not witnessed since before the shale fracking boom kicked off more than a decade ago.

However, concerns still remain over the threat of a second wave of the coronavirus infections worldwide that could yet stall a global economic recovery, and is likely to cap any rise in prices above US$50/bbl during 2020.